ACCOUNTING INFORMATION, STOCK MARKET GROWTH AND THE NIGERIAN ECONOMY

CHAPTER ONE

Introduction

1.1      Background of the study

Primarily, a stock market is the place where companies can raise money to make their businesses bigger and better. Companies raise money by selling shares or stocks to investors. At the same time, the stock market gives investors an opportunity to invest in these companies and benefit from any profit they can make.

A stock market can also be called a capital or securities market as it encompasses the stock exchange, the branches, and the stockbrokers. An organized securities market requires a securities exchange, a securities commission or other regulatory agency, and intermediaries such as dealers, brokers, securities analysts, etc. Virtually all costs are borne by those who benefit. The intermediaries receive their fees from the issuers or investors to whom they provide a service. The stock market is usually funded through fees paid by investors and issuers; even the expenses of the securities commission may be partially paid for by registration fees rather than being a major burden on the government budget. Companies which go public are subject to continuous cost of providing financial information, transferring shares, paying dividends, and other aspects of shareholder relations.

The stock market is the aspect of the financial system which mobilizes and channels long term funds for economic growth. The stock market embraces trading in both new issues (primary) and old issues of stocks (secondary). Securities are primarily of 2 types: debt and equity.

Debt securities include federal government development stock (GDS), industrial loans, preference stocks, bonds etc, while equity securities mainly concern ordinary stocks which impose higher liabilities on the holders. Portfolio investment in the capital market deals with an institutional arrangement involving the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), the operators, and the investors.

Stock market is viewed as a medium to encourage saving, help channel savings into productive investment, and improve the efficiency and productivity of investment. The emphasis on the growth of stock markets for domestic resource mobilization has also been strengthened by the need to attract foreign capital in non- debt creating forms. A viable equity market can serve to make the financial system more competitive and efficient.

Without equity markets, companies have to rely on internal finance through retained earnings. Large and well established enterprises are in a privileged position because they can make investment from retained earnings and bank borrowings, while new companies do not have easy access to finance. Without being subjected to the scrutiny of the stock market, big firms get bigger, and for the emerging smaller companies, retained earnings and fresh cash injections from the controlling shareholders may not be able to keep pace with the needs for more equity financing which only an organized market place could provide. The corporate sector would also be strengthened by the requirements of equity markets for the development of widely acceptable accounting standards, disclosure of regular, adequate, and reliable information. While closely held companies can camouflage poor investment decisions and low profitability, at least for a while, publicly held companies cannot afford this luxury. The availability of reliable information would help investors make comparism of the performance and long term prospects of companies; corporations to make better investment and strategic decisions; and provide better statistics for economic policy makers.

The capital market in any country is one of the major pillars of long term economic growth and development. The market serves a broad range of clientele including different levels of government, corporate bodies, and individuals within and outside the country. For quite some time now, the capital market has become one of the means through which foreign funds are being injected into most economies, and so the tendency towards a global economy is more feasible/ visible there than anywhere else. It is, therefore, quite valid to state that the growth of the capital market has become one of the barometers for measuring overall economic growth of a nation.

Stock markets may affect economic activity through the creation of liquidity. It contributes to economic development by enhancing the liquidity of capital investments. Many profitable investments require a long-term commitment of capital, but investors are often reluctant to relinquish control of their savings for long periods. Liquid equity markets make investment less risky--and more attractive--because they allow savers to acquire an asset--equity--and to sell it quickly and cheaply if they need access to their savings or want to alter their portfolios. At the same time, companies enjoy permanent access to capital raised through equity issues. The Nigerian capital market needs to play the role of an enabler for the transformation of the Nigerian economy, by becoming the first port of call for domestic savings and for international investors (Oteh, 2010).

Until recently, the literature has focused mainly on the role of financial intermediation in the process of economic growth and capital accumulation.

1.2 STATEMENT OF THE PROBLEM

The role of the stock  market to mobilize longterm fund to be channeled manufacturing  industrial development. Despite the relative dynamism andvitality observed in the evolution of the Nigerian capital market, empirical literature however suggests that the efficiency at effectiveness of the market inpromoting industrial development may be greatly limited as evidenced by the low level of the contribution of the industrial sector to overall market capitalization. The problem of this study is to ascertain the correlation between stock market and industrial development in Nigeria.

1.3 Objective of the study

This research work titled “accounting information, stock market growth and the Nigerian economy:

1.  Evaluating the role of Nigerian stock market on the development of Nigerian economy.

2.  To examine the impact of Nigerian stock market on the development of Nigerian economy.

3.  To determine the relationship between the stock market and Nigerian economy.

4.  To examine the various problems associated with Nigerian stock market.

5.  To also proffer possible solutions to the problems identified. 

1.4 Research question

The researcher formulated the following research questions:

1.  What are the roles of Nigerian stock market on the development of Nigerian economy?

2.  What are the impacts of Nigerian stock market on the development of Nigerian economy?

3.  Is there any relationship between the stock market and Nigerian economy?

4.  What are problems of Nigerian stock market?

1.5 Research Hypothesis

For the researcher to carryout extensive study on the subject matter, the following research hypothesis was formulated:

Ho: The Nigerian stock market has not played any role in the development of Nigerian economy.

H1: The Nigerian stock market has played significant role in the development of Nigerian economy.

Ho: Nigerian stock market has no impact on the development of Nigerian economy.

Ho: Nigerian stock market has significant impact on the development of Nigerian economy.

Ho: There is no relationship between the stock market and Nigerian economy.

Ho: There is significant relationship between the stock market and Nigerian economy.

1.6 SIGNIFICANCE OF THE STUDY

This research work will be of immense help to:

The Researcher: it will help the researcher to know more on the impact/role of the stock market on the manufacturing industry.

It will also be of great importance to stake holders as it will enrich their knowledge on the relevance of the stock market in the development of the manufacturing industry.

This will equally be of help to companies and banks, when they abide by the recommendations provided by the researcher it will help them in time of decision making.

This study will be of great importance to the country Nigeria as it will help the policy makers in terms of enacting law.

1.7   Scope and Limitations of the Study

The study shall focus on accounting information, stock market growth and the economy of Nigeria.

The researcher in carrying out this study encountered numerous problems, which includes:

FUND – This included lack of enough fund to move around and visit the organizations, the researcher has to visit the organizations more than two times, the researcher equally needed enough money to source material which constitutes an impediment. High cost of transportation in the city due to long distance also imposed its own limitation on the researcher.

LACK OF RESEARCH MATERIALS: lack of research materials was also one of the problems faced by the researcher in the cause of this research work.

RESPONDS OF THE RESPONDENTS: Another constraint to the researcher is that some of the respondents found it difficult to express their view with regards to the subject matter.

From the above points the researcher tried her best to bring out in detailed study on stock market growth of the manufacturing sector 1999-2013 but the above constraints have limited the researcher to only Enugu state.